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On January 31, 2018, a federal appeals court ruled that the structure of the Consumer Financial Protection Bureau (“CFPB”) complies with the Constitution. Many Republicans and attorneys in the financial industry had claimed a key provision of the CFPB—which provides for an independent director with a five-year term in office, subject to removal by the president only for “inefficiency, neglect of duty, or malfeasance in office”—unconstitutionally strips the president of his constitutional powers as set forth in Article II. In a 7–3 decision, the U.S. Court of Appeals for the District of Columbia Circuit disagreed.

The CFPB, which Congress created as part of the Dodd-Frank Act to regulate Wall Street following the 2008 financial crash, reports that it has returned about $11.8 billion to roughly 29 million consumers since 2011. But this winter, after Richard Cordray resigned as its director, Trump installed his Office of Management and Budget director, Mick Mulvaney—as its acting director. Mulvaney recently requested zero dollars in funding for the agency, stating that the agency has a significant surplus of funds thereby not requiring taxpayers to pay more money when the agency is already adequately funded.

The constitutional challenge to the CFPB centers on the president’s authority to manage executive branch officials. The Trump administration claimed that, because the CFPB is part of the executive branch, the president must be able to fire its director at will. PHH, a mortgage company the CFPB had fined $109 million in 2015 for allegedly running an illegal insurance kickback scheme, went further, arguing in court that the agency should be dissolved altogether. In October 2016, a three-judge panel of the D.C. Circuit ruled in favor of PHH, arguing that the agency’s structure was unconstitutional. The full D.C. Circuit then vacated the panel’s decision and reheard the case and has now affirmed the agency’s constitutionality.

Judge Nina Pillard’s opinion for the court explains the decision. The Constitution, Pillard wrote, permits Congress to establish “independent” agencies that are “one step removed from political winds and presidential will.” Indeed, in 1935, the Supreme Court ruled that the president lacks “illimitable power of removal” over these agencies, and Congress can insulate their commissioners from termination without good cause.

That decision, Pillard held, controls here. The main distinction between the CFPB and most other independent agencies is that the CFPB has a single director, instead of a group of commissioners. But Pillard found that this feature does not weigh against the agency’s constitutionality. She pointed out that the Supreme Court has instead drawn a line between officials who exercise “core executive functions” (whom the president may fire at will) and those assigned a “degree of independence” by Congress (who may be protected from presidential caprice). The CFPB director, Pillard concluded, falls in the latter category, and may therefore be shielded from arbitrary or purely political removal.

Judge Karen LeCraft Henderson dissented, arguing that the entire agency violates the Constitution and “should be invalidated top to bottom.” Judge Brett Kavanaugh also dissented, joined by Judge A. Raymond Randolph; he would have ruled that the president must be able to fire the CFPB director at will. Kavanaugh’s dissent carefully lays out the conservative case against the CFPB’s independence. “This is a case about executive power and individual liberty…

To prevent tyranny and protect individual liberty, the Framers of the Constitution separated the legislative, executive, and judicial powers of the new national government. To further safeguard liberty, the Framers insisted upon accountability for the exercise of executive power.

Kavanaugh asserts that the CFPB’s single commissioner setup “threatens individual liberty more than the traditional multi-member structure does.” When multiple commissioners oversee an agency, they can check each other’s excesses. But the absence of this “traditional safeguard,” Kavanaugh insists, threatens “the individual liberty protected by the Constitution’s separation of powers.”

Pillard dismisses this analysis. She states:

It remains unexplained why we would assess [the law] with reference to the liberty of financial services providers, and not more broadly to the liberty of the individuals and families who are their customers. Congress determined that, without the Dodd-Frank Act and the CFPB, the activities the CFPB is now empowered to regulate contributed to the 2008 economic crisis and Americans’ devastating losses of property and livelihood. Congress understood that markets’ contribution to human liberty derives from freedom of contract, and that such freedom depends on market participants’ access to accurate information, and on clear and reliably enforced rules against fraud and coercion. Congress designed the CFPB with those realities in mind.

At a moment when Trump and congressional Republicans argue that the FBI and CIA exist, subject to presidential authority, the dispute between Kavanaugh and Pillard about constitutional abstractions like “liberty” and “independence” becomes salient in ways that transcend a case that may be hypertechnical.

In “The Perfect Storm,” Gloucester fishermen, portrayed by George Clooney and Mark Wahlberg, discover their fishing boat is propelled into three raging weather fronts that collide and become the fiercest storm in modern history. Maybe it is hyperbolic to compare “The Perfect Storm” to what the Massachusetts Supreme Judicial Court (“SJC”) must decide in Dorrian v. LVNV Funding, LLC. Yet, the issue that will be decided has caused a 13.7 billion dollar industry angst and thus far has cost millions of dollars in settlements and attorney fees. On January 4, 2018, the SJC heard oral arguments in Dorrian. It is expected to finally settle a dispute that postures the Massachusetts Division of Banks (“Division of Banks” or “DOB”) against the judiciary, and consumer lawyers against the debt buying industry, over whether passive debt buying businesses must be licensed as debt collectors by the Division of Banks. A passive debt buyer is a business that purchases delinquent debts for investment purposes only. Passive debt buyers do not directly collect debt. Rather, they hire licensed debt collectors or attorneys to collect the purchased debts. The Division of Banks, the authority that issues debt collection licenses in the Commonwealth, has consistently held that licenses are not required for passive debt buyers if a licensed debt collector or an attorney admitted to practice law in Massachusetts collects the debt. These same words are still posted on the consumer page of the Mass.gov website, even though several trial courts and an appellate court have held otherwise. Dorrian is one of several class action cases presided over by Superior Court Justice Janet Sanders, charging passive debt buyers with collecting defaulted accounts from Massachusetts residents without a license even though these buyers of bad debt are not collecting anything.

G.L. c. 93, section 24A provides as follows:

(a) No person shall directly or indirectly engage in the commonwealth in the business of a debtcollector, or engage in the commonwealth in soliciting the right to collect or receive payment for another of an account, bill or other indebtedness, or advertise for or solicit in print the right to collect or receive payment for another of an account, bill or other indebtedness, without first obtaining from the commissioner a license to carry on the business, nor unless the person or the person for whom he or it may be acting as agent has on file with the state treasurer a good and sufficient bond. (emphasis added)

A debt collector is defined in G.L. c. 93, section 24 as “any person who uses an instrumentality of interstate commerce or the mails in any business the principal purpose of which is the collection of a debt, or who regularly collects or attempts to collect, directly or indirectly, a debt owed or due or asserted to be owed or due another…” (emphasis added).

The Division of Banks, in its advisory opinions, has consistently held that “a debt buyer who purchases debt in default but is not directly engaged in the collection of these purchased debts is not required to obtain a debt collector license provided that all collection activity performed on behalf of such debt buyer is done by a properly licensed debt collector in the Commonwealth or an attorney licensed to practice law in the Commonwealth.” Massachusetts Div of Banks adv op. (October 13, 2006).

Section 24A provides that a license is required if the debt collector is collecting the debt of another. Passive debt buyers own the debt. Clearly, they are not “collecting the debt of another.” So, the applicability of section 24A turns on the meaning of “indirectly.” The definition of debt collector refers to someone who “regularly collects or attempts to collect a debt, directly or indirectly, a debt owed….or due to another.” The word “indirectly” refers to collecting a debt due to another. How does that apply to a debt buyer who owns the debt? How can a debt buyer be a debt collector if it owns the debt that is being collected by a lawyer or collection agency and not by the debt buyer? Dorrian failed to address this critical issue. Rather, it focused on the term “indirectly.” In her decision, Judge Sanders plainly said that the Division of Banks is wrong. She criticized the DOB for creating a passive debt buyer category, not referred to in either G.L c. 93, sections 24 or 24A. To accept this interpretation, she said, “would…render meaningless the word ‘indirectly’ which the legislature…deliberately included” in both sections. Dorrianv. LVNV Funding, LLC, Superior Court Civil Action No. 14-2684 BLS2 at 14 (March 30, 2017).

Judge Sanders may not address in Dorrian whether a debt buyer is a debt collector if the debt that is being collected is its own. She does, however, discuss this issue in Gomes, et al v. MidlandFunding, LLC, Superior Court Civil Action No. 2011-01469-BLS2 (September 19, 2012). Rather than address the plain and unambiguous meaning of “a debt owed…or due to another,” she refers to the Fair Debt Collection Practices Act, 15 U.S.C. 1692(a), a statute on which the Massachusetts Debt Collection Practices Act (“MDCPA”) is modeled, and cites federal cases stating that “purchasers of defaulted debts are no less a debt collector simply because the activity at issue is the collection of debt that it now owns.” Id. At the time, the federal judiciary was split on this position. Nevertheless, she ignored the clear and unambiguous language of G.L. c 93, sections 24 and 24A. Instead, she focused on cases supporting the plaintiffs’ position.

Whether or not debt buyers, passive or otherwise, are debt collectors has since been settled by the U.S. Supreme Court in Henson v. Santander Consumer USA, Inc., 137 S.Ct. 1718 (June 12, 2017). The Henson Court unanimously held that a debt collector is defined as one “who regularly collects or attempts to collect, directly or indirectly, a debt owed or due or asserted to be owed or due another.” This definition does not include debt buyers because debt buyers do not collect debts “owed or due another.” Id. The phrase “directly or indirectly” only applies to the second part of the definition and it modifies the term “debt” which includes only those “debts” that are “owed or due another.” This plain reading of the FDCPA – which is identical to the MDCPA – establishes conclusively that debt purchasers are not “debt collectors” under the law. According to Henson, the only way a debt purchaser can qualify as a debt collector is if the debt purchaser “uses an instrumentality of interstate commerce or the mails in ay business the principal purpose of which is the collection of a debt.” G.L. c. 93, section 24 (emphasis added); cf. FDCPA, 15 U.S.C. section 1692a(6) The collection of a debt requires affirmative conduct, not mere passive receipt. The principal purpose of a passive debt buyer’s business is not the collection of debt. Rather, it is the acquisition of debt. That debt may be resold, used as collateral for financing, placed with debt collectors for collection, or used for any other legal purpose.

Whether the SJC will agree with the Supreme Court’s interpretation remains to be seen. If Dorrian is reversed, the passive debt buyer conundrum will be solved. But what if Dorrian is affirmed? Potentially, the debt buyers who relied on the DOB’s twelve years of consistent advisory opinions stating that passive debt buyers need not apply for a collection license, will have insurmountable legal exposure. The judgments they already received against nonpaying consumer defendants may be voided by courts. Potentially, these debt buyers may be required to refund hundreds of millions of dollars remitted to them by the debt collectors they hired. Adding insult to injury, even if the debt buyers had applied to the Division of Banks for collection licenses, by its own admission, the DOB did NOT grant licenses to passive debt buyers because, in its view, passive debt buyers did not need them. So, debt buyers were, and still are, stuck in between a rock and a hard place. They sailed directly into a perfect storm.

What will the SJC do? If the SJC adopts the Henson case and sides with the Massachusetts Division of Banks, passive debt buyers will be permitted to continue to refer the accounts they own to Massachusetts debt collectors. Their businesses will no longer be interrupted by licensing concerns. But if the SJC rules that passive debt buyers are debt collectors, and therefore are required to have debt collection licenses prior to referring its accounts to collection agencies and lawyers, they will be put into an untenable position. An entire industry will be disabled. The largest debt buyers will have to refund hundreds of million dollars to consumers who, in the first instance, justly owed the debts. To avoid injustice, the SJC can frame an equitable remedy. In 1877, the SJC was conferred with equity jurisdiction. The “grant of equitable powers does not permit a court to disregard statutory requirements.” Freeman v. Chaplic, 388 Mass. 398 , 406 n.15 (1983). A fair solution would be to grandfather into the statutory scheme passive debt buyers who relied on the DOB’s advisory opinions and allow them six months to apply for a collection license. The DOB should be ordered to expeditiously process these collection license applications. Debt buyers should not be disgorged any money. The consumers who owed the money should not be granted a windfall and receive refunds. In its decision, the SJC could state that henceforth all debt buyers, passive or otherwise, will need to be granted a collection license by the DOB before its defaulted accounts can be collected. In this manner, an entire industry can avoid a catastrophy. Justice would be served to allay the perfect storm into which debt buyers were impelled.

Like this:

By the stroke of a pen in Kraus v. Professional Bureau of Collections of Maryland, Inc., Case 17-CV-3402 (E.D.N.Y. November 27, 2017), a senior judge presiding over the U.S. District Court for the Eastern District of New York, I. Leo Glasser, brought common sense to collections. This case will be discussed herein. Portions of the Fair Debt Collection Practice Act (“FDCPA” or “Act” or “Statute”), a federal law that governs collections, its legislative history, and some of the cases interpreting the Statute, too will be discussed. The FDCPA was enacted by Congress to provide consumer debtors with a shield against unscrupulous practices of debt collectors, and not to hand debtors a sword that can be used to obtain relief from debts that they have incurred. Unfortunately, many debtors, their counsel, and courts have strayed far from that Congressional purpose, and too often the Statute has been put to illegitimate use. Now this senior federal judge has called out the misuse and abuse of the Statute and denied relief to a debtor whose sole reason for bringing a FDCPA claim was to avoid payment of a just debt.

Effective March of 1978[1], the FDCPA, 15 U.S.C. 1692, et seq., was enacted by Congress. Prior to its enactment, Congress found that “debt collection abuse by third party debt collectors[2] [was] a widespread and serious national problem.” S. Rep. 95-382, at 2 (1977) reprinted in 1977 U.S.C.C.A.N. 1695, 1696. The purpose of the Statute is to “protect consumers from unfair, harassing, and deceptive debt collection practices without imposing unnecessary restrictions on ethical debt collectors.” supra. Unfortunately, by interpretation, various courts have expanded the Statute inconsistent with the spirit, if not the letter, of its legislative history. Ethical debt collectors have become burdened with unnecessary restrictions, something that Congress sought to avoid.[3]

LEGISLATIVE HISTORY

The enacted purpose of the Statute was “to eliminate abusive debt collection practices,” while also ensuring that compliant debt collectors “are not competitively disadvantaged.” 15 U.S.C. section 1692e Collection abuse takes many forms, including the use of obscene or profane language, threats of violence, telephone calls at unreasonable hours, misrepresentation of a consumer’s legal rights, disclosing a consumer’s personal affairs to friends, neighbors, or an employer, obtaining information about a consumer through false pretense, impersonating public officials and attorneys, and simulating legal process 15 U.S.C. 1692e. Witnesses before the Senate Consumer Affairs Subcommittee testified that independent debt collectors were the prime source of egregious collection practices. “While unscrupulous debt collectors comprise only a small segment of the industry, the suffering and anguish which they regularly inflict is substantial.” Unlike creditors, who generally are restrained by the desire to protect their good will when collecting past due accounts, witnesses accused independent collectors of being unconcerned with the consumer’s opinion of them. The Committee concluded that “serious and widespread abuses…and the inadequacy of existing state and federal laws make this legislation necessary and appropriate.”

The Act prohibits harassing, deceptive, and unfair debt collection practices. These include: threats of violence; obscene language; the publishing of ‘shame lists;’ harassing or anonymous telephone calls; impersonating a government official or attorney; misrepresenting the consumer’s legal rights; simulating court process; obtaining information under false pretenses; collecting more than is legally owing; and misusing postdated checks supra. It was Congress’ intent to enable the courts, where appropriate, to proscribe other improper conduct not specifically addressed in the Act. The legislation prohibits disclosing a consumer’s personal affairs to third persons. Other than obtaining location information, a debt collector may not contact third persons, such as a consumer’s friends, neighbors, relatives, or employer. The Committee concluded that these contacts are not legitimate collection practices, may result in serious invasions of privacy, and the loss of jobs.

The Committee viewed the Act as “self-enforcing” meaning that consumers, who have been subjected to collection abuses, will be enforcing compliance. A debt collector who violates the Act is liable for actual damages as well as any additional damages the court deems appropriate, not exceeding $1,000, plus attorney fees. Congress intended the award of compensation for injury caused by the debt collector. The Statute provides that the court must take into account the nature of the violation, the degree of willfulness, and the debt collector’s persistence. By doing so, one can only conclude that Congress wanted Courts to consider both aggravating and mitigating circumstances. On the other hand, a debt collector has no liability if he violates the act in any manner when a violation is unintentional and occurred despite procedures designed to avoid such violations. Congress was even handed. It recognized that not every situation is black or white but that grey areas exist. Consequently, based upon the legislative history, Congress did not intend the FDCPA to be a strict liability statute even though Courts have interpreted it otherwise.

There are many cases imposing FDCPA liability on attorneys. Unfortunately, some judges have expanded the statute, sometimes inconsistent with the Act’s legislative history. An example of such an expansion is the adoption of the so-called “least sophisticated debtor” standard. The FDCPA does not establish this standard. Rather, it is silent. Instead, the Ninth Circuit Court of Appeals decided that, when evaluating whether language may be deceptive, “the court should look not to the most sophisticated readers but to the least.” Baker v. G.C. Servs. Corp., 677 F.2d 775 (9th Cir. 1982). The court concluded that “the FDCPA does not ask the subjective question of whether an individual plaintiff was actually misled by a communication. Rather, it asks the objective question of whether the hypothetical least sophisticated debtor would likely have been misled. If the least sophisticated debtor would likely be misled by a communication from a debt collector, the debt collector has violated the Act.” Guerrero v. RJM Acquisitions LLC, 499 F.3d 926,934 (9th Cir. 2007) (emphasis added). Hence, the least sophisticated debtor standard was born. The concept is not grounded in either the Act or its legislative history. Nevertheless, most other courts have followed the Ninth Circuit. They have adopted this standard to determine whether there has been a violation of section 1692e(1)-(16).

The Seventh Circuit affirmed summary judgment against a law firm for a FDCPA violation where the law firm assisted a bank’s collection efforts from certain credit card holders. See Nielsen v. Dickerson, 307 F.3d 623 (7th Cir. 2002). In Nielsen, the attorney received the debtors’ information from the bank, conducted a check of the data to screen out debtors that were bankrupt or deceased, and then mailed delinquency letters to the debtors on the attorney’s letterhead. Although the attorney was not authorized to resolve anything on the bank’s behalf, the delinquency letters contained the attorney’s contact information, and advised the debtor to contact “us,” presumably the attorney, if any part of the debt was disputed. The Court of Appeals affirmed that the attorney violated the FDCPA because the attorney had a small and ministerial role. The language contained in the letter gave consumers the misimpression that the attorney had exercised his professional judgment concluding that the debt was delinquent and ripe for legal action. The court opined that “an attorney must have some professional involvement with the debtor’s file if a delinquency letter sent under his name is not considered false or misleading in violation of the FDCPA.” Nielsen, supra at 638. And thus, the “meaningful attorney involvement” rule, a concept not addressed in the FDCPA, was born. This rule has been significantly expanded by other courts and the Consumer Financial Protection Bureau (“CFPB”) by consent decree. See CFPB v. Hanna & Associates, P.C., et al, Civil Action No. 1:14-cv-02211-AT (N.D. Ga. December 2015); In the Matter of Pressler & Pressler, LLP, et al., Admin Proceeding File No. 2016-CFPB-0009 (April 2016). Presently, the CFPB requires meaningful attorney involvement at every stage of a law firm’s collection of a defaulted account.

By this action, Plaintiff, Ms. Kraus (“Kraus” or “Plaintiff”) claimed Defendant, Professional Bureau of Collections of Maryland, Inc. (“PBCM” or “Defendant”) violated 15 U.S.C. section 1692e by sending her an offer to settle her debt for 40% of her account balance. The letter provided the amount owed on her account. It, however, did not state that the account balance might increase due to interest or other charges if not timely paid. See Avila, supra. In Avila, the Second Circuit held that a debt collector violates section 1692e if it notifies a consumer that an unpaid account balance may increase due to interest and fees if not timely paid. Avila, however, also provides a safe harbor for a debt collector who fails to disclose that interest or other charges may increase the outstanding balance. A letter that contains language stating “that the holder of the debt will accept payment of the amount set forth in full satisfaction of the debt if payment is made by a specified date” is exempt. So, the issue before the Kraus court is whether Avila applies to the letter and, if so, whether the settlement offer in the letter brings Defendant within the safe harbor of Avila. The Court found that Avila applies to the letter but that the letter falls within the safe harbor. Judgment was entered for Defendant but not before Judge Glasser explained why the letter fits within the Avila safe harbor. The PCBM letter clearly stated that Kraus’ account debt would be discounted by 40% if she paid the discounted amount prior to a specified date. The purpose of Avila is to prevent a consumer from being misled by paying the amount contained in the letter if, by the time she pays that amount, her debt may have increased due to interest or late fees.

Judge Glasser questioned what is the alleged harm in this case? He observes that tort law teaches that the violation of a statute will subject the violator to liability if the person harmed is a member of a class the statute was designed to protect, and the harm complained of is the harm the statute was designed to prevent. Though this action is not a tort case, Judge Glasser states that the same principle applies. As to harm, the Statute’s enacted purpose was to eliminate abusive debt collection practices. See 15 U.S.C. section 1692e; S. Rep. 95-382, at 2 (1977). The judge rhetorically asks “where is the abuse here? The court sees none.”

At oral argument, the judge asked her lawyer why did Ms Kraus bring this case? He responded because she is in financial distress. Kraus did not seek an attorney because she felt abused, deceived, or otherwise aggrieved. Rather, she did so because she wanted help getting out of debt. Judge Glasser firmly states that “the FDCPA is not a debt-relief statute and courts should not indulge thinly veiled attempts to use it as one.” Id at 14.

Sadly, abuse of the statute is unsurprising given the development of the law in this area, and the Court suspects such abuse is fairly widespread. In 2006, the Court observed that the interaction of the least sophisticated consumer standard with the presumption that the FDCPA imposes strict liability has led to a proliferation of litigation in this district…Since then, the number of FDCPA cases filed yearly in this District has more than quintupled. And small wonder, when all required of a plaintiff is that he plausibly allege a collection notice is “open to more than one reasonable interpretation, at least one of which is inaccurate. Clomon v. Jackson, 988 F.2d 1314, 1319 (2d Cir. 1993). Thisstandard prohibits not only abuse but also imprecise language, and it has turned FDCPA litigation into a glorified game of “gotcha,” with a cottage industry of plaintiffs’ lawyers filing suits over fantasy harms the statute was never intended to prevent. With Avila, the circuit’s FDCPA jurisprudence lurches to ever more plaintiff-friendly terrain. Kraus, supra at 14-15 (emphasis supplied).

Can a letter be described as ambiguous (or deceptive or misleading) regarding interest if it says nothing about interest? The court takes the common sense approach and answers the question “no.” “It makes as much sense to say the letter in Avila was ambiguous regarding interest as to say it was ambiguous regarding the date of the next presidential election or the existence of Bigfoot.” Interest on a debt is a familiar concept. Even the hypothetical least sophisticated consumer is aware of it. “A debtor who assumes his account balance will never increase, simply because a collection letter provides no information regarding interest, does so unreasonably, and this irrationality should not be rewarded by courts at the expense of non-abusive debt collectors.” SeeEllis v. Solomon & Solomon, P.C., 591 F.3d 130, 135 (2d Cir. 2010) as cited in Kraus, supra at 16. (“The hypothetical least sophisticated consumer is neither irrational nor a dolt. While protecting those consumers most [vulnerable] to abusive debt collection practices, this Court has been careful not to conflate lack of sophistication with unreasonableness.”)

Judge Glasser struggles with how Avila protects consumers. He questions whether these cases describe genuine instances of debt collection abuse. He is concerned that debt evasion is being facilitated for the purpose of increasing profits among the plaintiffs’ bar. Kraus supra at 18. Congress intended that the FDCPA would provide a shield against the overly zealous debt collector. By carrying the least sophisticated debtor standard and strict liability concepts to illogical extremes, it appears that “Courts have fashioned this shield into a sword” inconsistent with the Congressional intent of the Statute. Id.

CONCLUSION

For decades since the FDCPA’s enactment, federal courts have bent, distorted, contorted, misinterpreted and otherwise mischaracterized the statute, usually for the benefit of the consumer, even where no measurable damage has been sustained. The FDCPA is as much of a strict liability statute as a garden variety breach of contract case. A measure of damage needs to be found in both. This is, among other reasons, why the Kraus case is an oasis in a desert of federal cases finding the defendant debt collector liable for an alleged (if not dubious) FDCPA violation even where the debtor has not sustained any injury. Maybe the Kraus case signals the pendulum swinging toward a more common sense, judicial interpretation of the Statute consistent with Congress’ intent. Hopefully, hereafter, courts will apply the FDCPA to serious abuses in accordance with Congress’ intent and dismiss specious or implausible cases. At a minimum, plaintiffs with ulterior motives, such as seeking debt relief by suing under the FDCPA, should no longer be tolerated.

* Mr. Schreiber is a renowned collection, bankruptcy, and FDCPA defense trial lawyer. He is the founding member of Schreiber/Cohen, LLC, a business and trial law firm, with offices located throughout New England. He is a magnacumlaude graduate of Bowdoin College and a graduate of Syracuse University College of Law. After law school, Mr. Schreiber served as a judicial law clerk to the late Hon. Leon J. Marketos, U.S. Bankruptcy Judge for the Northern District of New York. Prior to founding his own law firm, Mr. Schreiber was an associate in the business litigation department of Burns & Levinson in Boston. He served for seventeen years as a private panel Chapter 7 trustee and Chapter 11 trustee appointed in cases pending in both the U.S. Bankruptcy Courts for the Districts of Massachusetts and New Hampshire. Mr. Schreiber is admitted to practice law in MA, NH, CT, VT, NY, PA, DC, and IN.

[2] The terms “debt collector” and “lawyer” are used interchangeably as lawyers who concentrate their law practices in collecting defaulted accounts from consumers are debt collectors within the meaning of the FDCPA. Heintz v. Jenkins, 514 U.S. 291 (1995).[3]Debt collectors are subject to a kind of Rule 11 on steroids. For example, collection lawyers may not rely on the integrity of defaulted accounts referred by their clients. Instead, lawyers (not paralegals) are required to, among other things, inspect the integrity of each account’s original account level documents twice: once before accepting the defaulted account from the creditor, and again prior to bringing a lawsuit seeking judgment to collect the claim. Lawyers no longer may rely on the veracity of client affidavits of indebtedness. Rather, lawyers must independently investigate and determine that the information contained in each client affidavit is true and accurate prior to commencing a lawsuit. These procedures may not sound burdensome except that creditor clients often refer hundreds, if not thousands, of defaulted accounts at one time, each one the basis of a prospective lawsuit. Staffing for such a client with sufficient lawyers charged with the task of reviewing each account individually, checking and double checking the integrity of each account’s documentation, independently determining the veracity of each client affidavit with the defaulted account to which it relates, without the assistance of paralegals, arguably are burdens Congress did not contemplate.

[4] Section 1692g(a) of the Act states that the validation notice must include the amount of the debt, the name of the creditor, a statement that the debt’s validity will be assumed unless disputed by the consumer within 30 days, and an offer to verify the debt and provide the name and address of the original creditor, if the consumer so requests.

Attorneys who act as debt collectors, as that term is defined under the Fair Debt Collection Practices Act (“FDCPA” or “Act” “statute”), to collect debts in behalf of their clients are exposed to liability by failing to comply with the statute’s requirements. One such obligation is to provide to consumers a notice of their rights otherwise known as a validation letter.[1] To a lawyer who is beginning a law practice representing consumer creditors, the FDCPA is a minefield of exposure that could easily explode if the lawyer fails to comply with the Act. Consequently, it is important that before one undertakes representation of a creditor as a debt collector, one becomes learned of the statute. Representing consumer creditors to collect defaulted accounts receivable is a law practice concentration. The FDCPA is to a creditor attorney as, for example but not by limitation, the Internal Revenue Code is to a tax lawyer as the Bankruptcy Code is to a bankruptcy lawyer and as the Securities Exchange Act is to a securities lawyer. It is all in the statute.

Effective March of 1978[2], the FDCPA was enacted to “eliminate abusive debt collection practices by debt collectors, to insure that those debt collectors who refrain from using abusive debt collection practices are not competitively disadvantaged, and to promote consistent state action to protect consumers against debt collection abuses.” 15 U.S.C. section 1692(e). Initially, lawyers were exempt from the FDCPA. That changed, however, by amendment in 1986 if they satisfied the definition of a debt collector. See also Heintz v. Jenkins, 514 U.A. 291 (1995). A debt collector is defined under the FDCPA as “any person who…[operates] any business the principal purpose of which is the collection of any debts, or who regularly collects or attempts to collect…debts owed…another.” 15 U.S.C. section 1692a(6)

* Mr. Schreiber is the founding member of Schreiber/Cohen, LLC, a business and trial law firm, with offices in New Hampshire, Connecticut, Maine, and Vermont. He attended Syracuse University College of Law and, after graduation from law school in 1982, served as a judicial law clerk to the Hon. Leon J. Marketos (now deceased), U.S. Bankruptcy Judge for the Northern District of New York. Prior to founding his own law firm, Mr. Schreiber was an associate in the business litigation department of the Boston Law firm of Burns & Levinson. He served for seventeen years as a private panel Chapter 7 trustee and Chapter 11 trustee appointed in cases pending in both the U.S. Bankruptcy Court for the Districts of Massachusetts and New Hampshire.[1] Section 1692g(a) of the Act states that the validation notice must include the amount of the debt, the name of the creditor, a statement that the debt’s validity will be assumed unless disputed by the consumer within 30 days, and an offer to verify the debt and provide the name and address of the original creditor, if the consumer so requests.[2] Congress was busy in the late 1970’s legislating federal laws aimed at protecting debtors. Effective October 1, 1979, Congress enacted the Bankruptcy Reform Act of 1978 significantly expanding debtors’ rights and protections under bankruptcy law. Prior to that date, Congress had not significantly amended the federal bankruptcy laws since 1898.

Consequently, attorneys hired by creditors are held liable as debt collectors under the FDCPA, when they regularly engage in debt collection. The FDCPA applies to the collection of consumer debts only. It does not apply to the collection of commercial debts.

The FDCPA prohibits debt collectors from using “any false, deceptive, or misleading representations or means in connection with the collection of any debt.” 15 U.S.C. section 1692e. The statute identifies 16 nonexclusive instances of conduct, none of which will be discussed herein, that would constitute a violation of this prohibition. 15 U.S.C. section 1692e(1)-(16).

There have been many cases imposing FDCPA liability on attorneys. Unfortunately, some judicial interpretations have expanded the scope of the statute, sometimes inconsistent with the Act’s legislative history. One such example is the adoption of the so-called “least sophisticated debtor standard.” The FDCPA does not establish this standard. Rather, it is silent. Instead, the Ninth Circuit Court of Appeals on its own decided that when evaluating whether language may be deceptive, “the court should look not to the most sophisticated readers but to the least.” Baker v. G.C. Servs. Corp., 677 F.2d 775 (9th Cir. 1982). The court concluded that “the FDCPA does not ask the subjective question of whether an individual plaintiff was actually misled by a communication. Rather, it asks the objective question of whether the hypothetical least sophisticated debtor would likely have been misled. If the least sophisticated debtor would likely be misled by a communication from a debt collector, the debt collector has violated the Act.” Guerrero v. RJM Acquisitions LLC, 499 F.3d 926,934 (9th Cir. 2007). Hence, the least sophisticated debtor standard was born without foundation from either the Act or its legislative history. Most other courts have followed the Ninth Circuit by adopting this standard to determine whether there has been a violation of section 1692e(1)-(16).

The Seventh Circuit affirmed summary judgment against a law firm for a FDCPA violation where it assisted a bank’s collection efforts from certain credit card holders. See Nielsen v. Dickerson, 307 F.3d 623 (7th Cir. 2002). In Nielsen, the attorney received the debtors’ information from the bank, conducted a check of the data to screen out debtors that were bankrupt or who lived in prohibited states, and then mailed delinquency letters to the debtors on the attorney’s letterhead. Although the attorney was not authorized to resolve any matters on the bank’s behalf, the delinquency letters contained the attorney’s contact information, and advised the debtor to contact “us,” presumably the attorney, if any part of the debt was disputed. The Court of Appeals affirmed a finding that the attorney violated the FDCPA, not because the attorney played a significant role in the collection process, but for the opposite reason: The attorney’s small and ministerial role, coupled with the language in the dunning letter, left consumers with the misimpression that the attorney had exercised his professional judgment that the debt was delinquent and ripe for legal action. Critically, the court opined that “an attorney must have some professional involvement with the debtor’s file if a delinquency letter sent under his name is not to considered false or misleading in violation of the FDCPA.” Nielson, supra at 638. And thus, the “meaningful attorney involvement rule” was born. This rule has been since significantly expanded by other courts and the Consumer Financial Protection Bureau (“CFPB”) by consent decree. See CFPB v. Hanna & Associates, P.C., et al, Civil Action No. 1:14-cv-02211-AT (N.D.Ga. December 2015); In the Matter of: Pressler & Pressler, LLP, et al., Admin Proceeding File No. 2016-CFPB-0009 (April 2016).

So, it is insufficient for a practitioner to read and comply with the Act. Rather, practitioners must know and understand the case law that has interpreted the statute and its judicially expanded scope before embarking on the squirrely chore of collecting a client’s defaulted accounts from consumers. Even the occasional practitioner who helps a client to collect a debt should be familiar with the FDCPA. If one decides to undertake a collection practice, one would be wise to carefully review the statute and study the scores of cases interpreting it.